Rents..

Rents appear to be bottoming in many areas. Here are a couple data points (all emphasis mine).

From Jon Lansner:

Rents in Southern California fell 0.2% for all of 2010, by math from the Bureau of Labor Statistics that is based on a survey of renters. It’s the first drop since 1995. And the previous drop was in 1941.

But renters should be aware that landlords appear to be regaining some pricing power. The local CPI shows that rents rose on a year over-year basis in the last four months of the year. December’s 1.1% jump vs. a year earlier was the largest annual rate of rent increases in 16 months.

From Calculated Risk (here and here):

Rent growth is mostly from reduction in concessions. Not as much top line growth.

• Almost all areas are showing improvement.

• Walt Smith, CEO Riverstone Residential (manages 162,000 units) said it is "Pedal to the metal" on rents

...

The overwhelming sense from participants is "YES" the apartment recovery is real. One data point - There are a record number of attendees this year.

The expectations are for a record low supply completed this year (as Tom Lawler and I have noted before). Some pickup in completions next year (2012), and then plenty of completions in 2013. The starts will probably pickup later this year, although I'll know more at a later session. The pickup in starts will help both GDP and employment growth this year.

The expectations are for strong rent growth over the next two years (around 5% per year) for large upper tier apartments. This will keep the vacancy rate from falling too much as owners trade off rent increases for occupancy.

When rents are falling the buying decisions becomes much less favorable. If rent vs own prices are in the ballpark and rents start increasing, obviously the purchasing decision becomes much easier. But in many areas renting vs owning is still much cheaper and so rental growth is something to watch but not something that will push you into needing to buy right away.

Foreclosed renters put in a very strong position..

This was passed as part of the "Helping Families Save Their Homes Act of 2009" (emphasis mine):

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TITLE VII--PROTECTING TENANTS AT FORECLOSURE ACT
SEC. 701. SHORT TITLE.
This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009 '.
SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY.
(a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to--
(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and
(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure--
(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1),
except that nothing under this section shall affect the requirements for termination of any Federal- or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.
(b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be considered bona fide only if--
(1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy.
(c) Definition- For purposes of this section, the term `federally-related mortgage loan' has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).
----------------------------------------------------------------------------------

So renters get at least 90 days. The lease survives foreclosure so they could get until the end of the lease unless the purchaser at trustee sale intends to occupy the property, in which case they can give the 90 day notice.

Foreclosing just got more expensive for the banks, Cash for keys will be more expensive or the timelines to get the house vacant will be longer. This additional risk will eventually be priced into mortgage rates once those rates return to a market based mechanism as opposed to the engineered rates we have now due to the 1.25 Trillion dollars worth of Federal Reserve purchases.

Rents falling...

Jon Lansner over the the O.C. Register had this update regarding falling rents from Axiometrics:

Axiometrics figures show. Nationwide, effective rents fell 4% since August, dropping to an U.S. average of $930 a month. In California metro areas, six-month rent drops ranged from 3.3% in Salinas to 7.2% in the San Jose area. (Chart shows average effective rents per month and six-month percentage changes by metro area!)

A chart was also posted showing that rents for Los Angeles county dropped 6.2% in the last 6 months and dropped in Ventura County down 6.0% in the last 6 months. Vacancy rates for O.C. were also rising dramatically and while Jon didn't post the data for Ventura and Los Angeles it is safe to assume that local apartments are also seeing a dramatic rise in vacancy.

Rents are much more directly tied to wages and the underlying economy. And I think this is a reflection of how weak things are getting. I think the next step will be an even bigger migration from California to cheaper living areas.

Homeownership vs Renting in 2009

The Center for Economic and policy research has a report out regarding the change in wealth over the last 5 yrs broken down between renters and homeowners. The charts are interesting, take note that the scales change on the left hand side when comparing some charts between ownership and renters over the left hand side. Here is a quote from the executive summary:

These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement.
Finally, the projections show that for both age groups, the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile. Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth.